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QUERY DESK

This is a limited access to the Query Desk, where we share some of the Queries we have answered. These are not recommendations, but a casual chat between a client and his advisor.

Client

04, Jun 19

Query

Subject: PI industries, LTTech and Gruh

Hi Amit,

 

Have following queries:

 

1. U replied that u see PI going up 3-5x over five years with fantastic management which fits exactly with Multibagger thesis, then why aren't we buying it?

 

2 Do u think now we should subscribe in L&T tech Ofs considering its one of ur preferred picks in technology

 

3 hdfc ltd did bulk deal in Gruh at 260 last week, is it possible to get some block for stallion family?

Admin Reply

06, Jul 19

Hi Sir,

PI Industries is able to attact kickass talent - Dr Raman Ramachandran (ex BASF India Chairman and MD) as its CEO for the next three years. Dr Ramachandran has deep expertise in agrochemical business (on R&D and distribution side) and has spent most of his working career with BASF which should help PI build deeper relationships with global MNCs. Mayank Singhal (promoter and outgoing CEO) will now be designated executive VC & MD.

 

PI Is now managed by Professionals but still has Great Entreprenuer Spirit. 

 

1-2 Months Back they also Hired Dr KVS Ram Rao from Dr Reddy & my People tell him he is a star as CEO of CSM Business. 

 

I dont know if it will be 5x in 5 years or no but its a great business model & now has a superb Team

 

The Rest Two question are easily understood by our Actions.. 

Client

04, Jun 19

Query

Subject: Query on the Pharma Sector

Dear Amit - In your June newsletter you wrote that you would concentrate on the 4 Key Sectors: Financials, Consumer, Pharma and IT. You also said that after making an exit from the 2 Infra stock from our Portfolio we would be sitting on 18% cash. And then you mentioned that you are looking to make new investments in Technology, Consumers and Real Estate. 

My question is what about the Pharma sector which is part of what you said would be the 4 key sectors and still does not come in your plans for the new investments?

Pharma currently is quite low.. Are we waiting for some more downside?

 

Admin Reply

06, Jul 19

Hi Sir,

There are three types of Pharma Companies 

Indian Companies who sell to the USA typically generics - I believe stringent USFDA audits and heightened competition are structural issues for US generics not cyclical issue. India is already 40-50% Market share of Generics in the USA & there is massive pricing pressure here as ofcourse this is just a commodity business. 

 

MNC Companies selling in India - Pure-play generics push is high on Government’s agenda & this scheme of Aushadhi is scaling up really fast where you can get a 50-80% discount on generics but till now it hasnt had a impact low prescriber confidence and sub-par chemistry standards are roadblocks. Price controls are here to stay, while initiatives like Ayushman Bharat and Janaushadhi stores could enable the Government to push pure-play generics.

 

Indian Companies Selling in India - Larger names like Dr. Reddy’s and Cadila are re-focusing on India yet India. India's Pharmacetical Market size is 1.2 Lakh Crores in Total & about 10-15k Crores of Profits. MNC's are 17% Market share, Indian Domestic Large Pharma companies are 58% whereas other small players are 26%.

 

There are two types of diseases i.e. Chronic (Heart or diabities) or Acute (Cold, fever etc)

 

Typically i would like to Bet on a B2C Company in Pharma Growing at 15-20% in the Indian Pharma Market with a large share of Chronic!  We havnt got such deal yet

 

 

Client

03, Jun 19

Query

Subject: How you are going to achieve alpha return

IN THIS BUSINESS, IF YOU ARE GOOD YOU ARE RIGHT SIX TIMES OUT OF TEN. YOU ARE NEVER GOING TO BE RIGHT NINE TIMES OUT OF TEN - PETER LYNCH.

Sir, in our portfolio -

3 Stocks - could be multibagger 

7-10 Stocks will perform mediocrely

3 Stocks will not perform or could make the loss

What here I want to say is that if we keep maintaining 10% upper limit for our core stocks then how we are going to get a big return on our portfolio?

Please provide a detailed answer here about how you going to achieve an alpha return while you are cutting weights on your stocks which are performing.

Amit Sir you and I are here to make BIG MONEY in the market but if you keep cutting weights on stocks which are performing well and moreover they are our core bets then how we are going to achieve our GOAL.

Thanks 

Vasu Lalan

 

 

Admin Reply

06, Jul 19

Hi Sir,

Well Peter lynch wasnt in India.. Here sometimes you face risk from SEBI (ASM & Mutual Fund Exposure), Sometimes from RBI (Nessesary Dilution), Sometimes from the Prime Minister (Demonetization), Sometimes from Promoter (Spencer buys Godrej Natures Basket) & just incase you survive from these risk you also have business risks (Current consumer slowdown).. Ofcourse i am not even getting to corporate governance part.. Just Incase You get a company which doesnt get affected by these risks then you have think about Valuation risk that you have to take.. If you get a Company which you believe is Value Stock but has corporate governance issue you will see that stock going from value to deep value to Deepest ever value in no time, the only think that will keep increasing is your margin of safety!

 

India is not an easy Trade in the Short term, You will have bullets from all sides every week believe me.. I understand what you are saying, totally do & your right but when trend reverses you need to panic & get out.. What i have seen is that the only time a normal person believes that a good time to sell stocks is a 52 week highs, No Thats not true, the only time to sell a Stock is when either Price Trend or Earning Trend Breaksdown.. 

 

I have been in this business for long time, my goal isnt to make sure that just the Model portfolio performs (I am confident on this one) but to make sure that the stallion family participates in it.. 

 

Consistent Profit Booking wont have a big problem if we can have a good capital Allocation strategy & based on backtest on our own history of Last 5-6 Years, consistent profit booking didnt decrease any alpha instead it increased our returns by 1.25% CAGR.. 

 

I totally understand what your trying to say & I agree to it partially but in a advisory model i dont think thats possible.. 

Client

24, Apr 19

Query

Subject: Performance Disclosure of Momentum & PMS

Hi Amit,

Why dont you do a Performance disclosure of PMS & Momemtum like you guys do for Multibagger? 

Admin Reply

22, May 19

Hi Sir,

Our PMS Performance can be Seen on SEBI's Website on the 5th of Every month .. https://www.sebi.gov.in/sebiweb/other/OtherAction.do?doPmr=yes

 

YTD Midcap Index has given -6.2%, Our PMS is +6.1%, Momentum is +1%, Multibagger is +6.6%

 

All 3 Products have done better than the Benchmark though Multibagger is showing a lot of beta due to Infrastructure exposure... PMS is doing well with our core stocks performing well with 89% Portfolio weight is doing really well! I am very happy with the Stock Feed Updates of Momentum, They are very educating.. 

 

Overall i am confident all 3 will be kickass Products for next 10 years.. 

 

Enough of Incremental Changes on website, I think we need a 10x Improvement on the Website & Stallion Family support!

Client

17, Apr 19

Query

Subject: Understanding the management of a company

Sir

I want to Understand how to judge a management? We discuss so much about bad quality & good quality

Admin Reply

22, May 19

Hi Sir,

I judge Management on 3 Things

1) Capital Allocation 

2) Ethics

3) Balance Sheet

 

1) Capital Allocation - Capital allocation is the most fundamental responsibility of a senior management team of a every company. The problem is that many CEOs, while almost universally well intentioned, don’t know how to allocate capital effectively. The proper goal of capital allocation is to build long-term value per share. A Good Capital Allocation is one that Increases ROCE of the Company while keeping happy customers..

 

A) Funny Parts is that = Academic research shows that rapid asset growth is associated with poor total shareholder returns. Further, companies that contract their assets often create substantial value per share. Ultimately, the answer to all capital allocation questions is, “It depends.” Most actions are either foolish or smart based on the price and value.

 

Warren Buffett, chairman and CEO of Berkshire Hathaway, describes this reality in his 1987 letter to shareholders

This point can be important because the heads of many companies are not skilled in capital allocation. Their inadequacy is not surprising. Most bosses rise to the top because they have excelled in an area such as marketing, production, engineering, administration or, sometimes, institutional politics. Once they become CEOs, they face new responsibilities. They now must make capital allocation decisions, a critical job that they may have never tackled and that is not easily mastered.

 

To stretch the point, it’s as if the final step for a highly-talented musician was not to perform at Carnegie Hall but, instead, to be named Chairman of the Federal Reserve. The lack of skill that many CEOs have at capital allocation is no small matter: After ten years on the job, a CEO whose company annually retains earnings equal to 10% of net worth will have been responsible for the deployment of more than 60% of all the capital at work in the business.

 

CEOs who recognize their lack of capital-allocation skills (which not all do) will often try to compensate by turning to their staffs, management consultants, or investment bankers. Charlie [Munger] and I have frequently observed the consequences of such “help.” On balance, we feel it is more likely to accentuate the capital-allocation problem than to solve it. In the end, plenty of unintelligent capital allocation takes place in corporate America. (That's why you hear so much about “restructuring.”)

 

Intelligent capital allocation requires understanding the long-term value of an array of opportunities and spending money accordingly. It also includes knowing the value of a firm’s individual assets and being willing to sell them when they are worth more to others.

 

Buffett says, “The first law of capital allocation—whether the money is slated for acquisitions or share repurchases—is that what is smart at one price is dumb at another.”

 

There is a Book called - The Outsiders: Eight Unconventional CEOs and Their Radically Rational Blueprint for Success

 

The Game are Played the Same way Globally - Businesses that grow rapidly generally require a sizable amount of investment. For example, imagine a restaurant concept that is highly successful, To get growth the firm must build lots of restaurants and hence invest a substantial sum in expansion. 

 

1) GROWTH + ROCE+ BUILDING COMPETATIVE ADVANTAGE = SMART CAPITAL ALLOCATION

2) GROWTH+ HIGH ROCE BUT WITHOUT COMPETATIVE ADVANTAGE= SMART BUT NOT SUSTAINABLE CAPITAL ALLOCATION

3) GROWTH+ LOW ROCE WITHOUT COMPETATIVE ADVANTAGE= DESTRUCTION

4) GROWTH+ LOW ROCE TODAY BUT COMPETATIVE ADVANTAGE FOR HIGH ROCE TODAY= DEPENDS IF YOU CAN CONSISTENTLY RAISE CAPITAL OR NO

 

As i said in my Monthly Newsletter = There are three Kinds of Competative Advantage

1) Consumer Advantage

2) Production Advantage

3) Government Advantage

 

There are companies like lets say Hero Honda which till 2012 had consumer + production advantage.. They had the lowest cost of production bikes in the world while having the Highest ROIC!

 

2) Ethics - In India Two One has less significance if ethics are not there.. I believe 50% of Companies in India do JUGAAD's at various levels.. Dividend Payout Ratio is a good measure if money is real or no & then there is operating cash flows, recievable cycles etc etc

 

3) Balance Sheet- We found out good Managements have Great Balance Sheets... The Place to look out for a good capital allocator is not the P&L but its balance sheet... 80% Companies with Negative working capital cycle (not easy to achieve) pass my test of good capital Allocation. Balance Sheets typically get screwed with 1-2 Bad Investments & good managements have Zero tolerance for bad growth. Companies that wish to grow will inevitably make investments that do not pay off. Ofcourse The failure rate of new businesses and new products is high. Seeing an investment flop is no sin; indeed it is essential to the process of creating value. What is a sin is remaining committed to a strategy that has no prospects to create value, hence draining human and financial resources.

Client

18, Mar 19

Query

Subject: Media Stocks, any view?

Hi Amit,

been with stallion for 2.5 years & proudly recommend you. my CAGR Returns are 23% but my bet is on you. What is your view on Media stocks?

Admin Reply

02, Apr 19

Hi Sir,

The best and oldest advertising is word of mouth. When that doesn't work, you have advertising agencies to design ads to get the message to the consumer. We have radio, television, newspapers, billboards, direct mail, Internet banners, and a huge number of highly specialized magazines. The Interesting Part is that advertising has become the battleground on which manufacturers compete with one another.

 

Consumer Companies spend hundreds of crores  a year to get their "buy our product" message to potential customers. There is no turning back. Companies have to advertise or they run the risk that their competitors will sweep in and take over their coveted niche in the marketplace.

 

Advertising creates a bridge between the potential consumer and the manufacturer. For a manufacturer to create a demand for its product, it must advertise.  IT is almost impossible for them to stop. Competition creates a repetitive need. If a company stops advertising, its competitors will step in and fill the void.

 

This is a Great Business model but in India you have to be a little careful.. Mukesh Ambani ownes Tv18, it doesnt mean his focus is profits, his focus can be PR.. Zee Has its own struggle.. Sun TV is a great business model but again dodgy promoter & its losing market share.. News Channels in India dont necesarrily makes profits in Legit ways..

 

Client

17, Mar 19

Query

Subject: Bull Run and when to sell

Hi Stallion Team

We started hearing a lot of positive news in the last 10 days. Multiple sources are saying that next two years shall be very good for small cap and mid cap. 

 

As an investor i am happy to see that the portfolio has started rising as a total with a few stocks being very negative. I would like to know would there be calls to book profits during this bull run so that we make up for the losses we incurred during the bear market. At what levels of individual stocks would we book profits. I hold stocks as per your recommendation in multi and momentum. 

regards

Ravi

 

Admin Reply

02, Apr 19

Hi Sir,

Our dreams have to be bigger, Our ambitions higher, Our commitment deeper, and our efforts greater.

 

This is 5-10 year Journey & be ready to have good & bad Years. We will all have to be in the game & there can be no bigger mistake than getting out of the Game because of a bad year.. If an Entreprenuer shut this shop because of a bad year, you think the problem is in the business or the entreprenuer? 

 

Believe me Sir, we get so much more better every year, every mistake we make teaches us the game better. We are extremely fast learnings & the dream of Stallion Family are my Dreams.. 

 

Dont worry about Bear Market, Bull Market they are like winter & summer, they have to happen but we need to keep working hard, improving ourself by every passing day.. 

 

This Year Thought a Very Important Lesson - "A bad person is a bad person, and a bad person will never make you a good deal. The world is filled with enough good and honest people that doing business with the dishonest ones is pure foolishness.”

 

We need a few large trends & believe me sir, all will be awesome.. 

 

Individual Stocks Booking Profit - We will keep booking Profits when a Core Stock goes above 10% & Growth Stocks go above 7% Allocation.. By end of June we will have a proper Sell Rule in Place for all our holdings, I just want election to go & i will disclose our sell strategy in Detail. (Have worked a lot on it)

Client

16, Mar 19

Query

Subject: CMT

Hi Amit, 

First of all very congrats, your market view was bang on regarding the pre election rally and I hope it will continue n help all of us achieving financial freedom. 

My question is little off the topic, Would you recommend CMT for an investor like us. I have worked as a technical analyst for an year so I know little bit of it but would like to know your views on same.

Thanks. 

Admin Reply

28, Mar 19

Hi Sir,

CMT has helped me a lot, not just in technicals but my ability to read fast.. whenever i start a book, i look at the pages first, in level 2 CMT you had to read 11000 Pages or about 11-12 Book.. They never had a proper book like CFA instead they used to give books of many authors to read.. 

 

I did CMT level 1,2,3 exams in 6 months while working so have really tough to read 100 pages a day but CMT taught me that really well.. (Now you have proper books is what my people told me for CMT but when i did it they never had proper books)

 

We are probably the only people who publically caught the bottom (2019) as well as the top (2018 Jan) of this Market & the reason for that is a combination of Psychological+ Time Cycles + InterMarket + Pattern+ Market Cycles.. 

 

We had written in January 2018 (1st Feb 2018 Newletter) that this market Might bottom in March 2019 (that was Time Cycle)

 

Our Conviction Increased when  500-700  Stocks were hitting Lows daily in December & January - Pattern 

 

Intermarket Analysis - I kept telling everyone on Query desk as well that the MSCI EEM will not go below 37-38 & MSCI EEM bottom at 37.5 in November 2018.

 

The Number of New Clients calls at Stallion Reduced to the Lowest level in January-Feb 2019, The Highest was in December 2017 & December 2018 - Psychology of the Crowd.

 

Nothing is Markets are New, What has happened in the Past will happen again & Again.

Client

21, Feb 19

Query

Subject: small cap index corrected approx 70% in 2008

Hi Amit 

I want to know our market(Sensex) was flat from 1992 ---2002 .....what was the reason and can we expect this type of no return for a longer time in future.

In 2008 small cap index was down by 70% so 100 rs becomes 30rs so it will take 3-4 yr to recover the principal . so in this condition one has to wait for atleast 10 yr to get good return.  

main question is that ...... can this be happen in future like 70% correction type and no return of sensex for approx 10 yr because this is one aspect of equity market too. we need to know the flip side too.

Admin Reply

07, Mar 19

Hi Sir,

 1992 to 2002 you are right the markets were flat & why did this happen? - Between 1989 to 1992 the Sensex between up 11x i.e. from 350 to 4400 (Harshad Mehta)..The Markets are always mean reverting in the Long term .. 

 

Question 2 - In 2008 small cap index was down by 70% so 100 rs becomes 30rs so it will take 3-4 yr to recover the principal . - Sir the BSE small cap index was 7000 in 2007, it went & hit 14000 in 2008 & then went down to 3000 in 2009 but hit a high of 11000 in 2010.. It is true that SmallCap index is super volatile but it always pays to do a SIP here rather than lump sum

 

Question 3 - can this be happen in future like 70% correction type and no return of sensex for approx 10 yr because this is one aspect of equity market too. we need to know the flip side too. - For a 70% Correction, you need a 500-800% upmove.. It can happen but large corrections happen after a Large mad rally.. 

Client

10, Jan 19

Query

Subject: Regarding intraday strategy tips

Hi Sir, 

I need your opinion regarding intraday trading.. 

I am a multibagger member of stallion and will always be with the aim of 10x in 10 years.. 

I am seeing a company a1.... tips. com which gives reliable intraday tips with good returns monthly claiming to doule my money in a year in intraday basis.. Do you recommend if i allocate 10 percent of my portfolio in this? 

 

Admin Reply

24, Jan 19

Hi Sir,

Stallion Asset doesnt Support or Recommend Intraday Trading, please use the below for education purpose only. 

 

I am a Chartered Market Technician (USA) and backtested atleast 1000+ technical Strategies. Now some of the things we learn is pure junk and needs to removed from our heads.

So i have learned various strategies from Various traders.

A) 2004–2009- I was a Trader (student) and went bankrupt a couple of times. That’s was my biggest learning curve, i understood that in Financial Market its what not to do that is more important than what to do. (Risk Management)

 

B)  2010- A Bank -White Guy who would wear a hat to office at Bank and always a yellow Tie(London). He had 10 coffees a day. He waited for Black Swans, he was always long volatility. He would buy deep out of the money options and hold it in various markets around the globe. (THATS IT) He believed that markets always underestimated volatility, and believe me i have seen his equity curve, it was unbelievably amazing. In last 10 years, he had only 4 losing Quarters and that he had never had a negative return. The trick is to diversify, because you will be wrong in 8 out of 10 trades as the options expire worthless, but the 2 trades you make money in, that would be more than sufficient

 

C) 2011 - Brokerage House - I have already shared this strategy on Qoura and i personally am 100% confident on this one cause i have used it for years. The one which i used to personally use was TRADING THE GAP. I have BackTested this strategy in various markets including the Nifty futures stocks, S&P 500 and FTSE 100.

Since i used it a lot in Indian Stock Markets, i will be using Indian data for this for the Answer. The Idea is to find out companies that will have a trend day or a large candle either Black (down) or White (up)

We are Hunting for a Trend Day, which is a very recurring pattern in the Stock Market. This is what a trend day looks like.

  1. 9.15 a.m.–9.25 a.m. - Find Stocks that Have opened with a GAP up or Down of more than 2%. Out of 200 FNO stocks, you have cut down your selection criteria to 3–4 stock. There is some news in this stock, or some large investor wants to buy large quantities in this stock and hence the GAP.
  2. 9.25 a.m–9.30a.m. - There will be 3 data point available 1) Volume. 2)High 3) Low. Volume has to be higher than previous days volume in 10–15 mins. Now keep a buying Stop Loss above the days High.Example yesterday stock A closed at 100, today it opened at 103 and in the first 10 mins made a low at 102.55 and High of 103.5. As soon as it crosses its 15 minute high of 103.5 buy it.
  3. 9.30am–3.30pm - Once the Buy order is triggered, Keep days low, or weighted average price (available on all trading software like zerodha, Sharekhan etc for free) as your Stop Loss. Keep Riding the stock until its 3.15 or your trailing stop loss is triggered.

Thats it, Very easy strategy with mind blowing results . This works on the Reverse Side as well when the stock opens down 2%, thought the results are better if you do it long only.

We have done a blacktest of this strategy taking for 1,000 trades and i have used it extensively when i was a trader.

The Results for the long only data were as follows

Trade Win% after Transaction Cost- 48%

Trade Loss% after Transaction Cost- 52%

Profit per Trade - 2.3%

Loss Per Trade- 0.7%

You have a automated Stop loss which is your weighted average price, as price of the stock increases during the day, so does your weighted average price (Stop loss). Use this system for a month, i never faced a draw down of more than 10% in my trading career.

You might be thinking if i was such a good trader, why did i move to start my company Stallion Asset which is into Long term investments?

This Strategy works only if you have less than 20–30 Lakhs rupees, because after that you start affected the volume of the stock, the stoploss doesn’t get triggered properly.

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